On Our Radar

On Our Radar

Hedge Fund Looks to Shake Up BHP Billiton's Board

MELBOURNE, Australia--One of the activist investors targeting BHP Billiton Ltd. for a sweeping overhaul is sounding out possible candidates for a shake-up of the resources company's board.

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Tribeca Investment Partners is holding private talks with a number of people, believing a majority of BHP's 11-person board oversaw some of the mining and energy company's missteps in recent years but haven't been held responsible, said Craig Evans, a portfolio manager at the Sydney-based hedge fund.

Angling for an overhaul of BHP's boardroom is timely given the search under way for a successor to Jac Nasser, who plans to retire as BHP's chairman in 2018 after eight years in the role. It also marks the latest move by a shareholder openly pushing for changes.

Tribeca last month joined Elliott Management Corp. in criticizing BHP for destroying shareholder value, and called for BHP to sell its U.S. onshore oil and gas assets and use the about $10 billion it should be able to raise to return capital to investors and invest in growth projects.

"The main thing for us is the board is constantly showing it isn't aligned with shareholder interests (on) returns and it must be addressed, " Mr. Evans said.

He said Tribeca has identified several individuals with long-term experience in the industry at the board level and before that as chief executives in the sector. He said the names of the people wouldn't be disclosed until Tribeca had the opportunity to discuss changes with the company or it had been rebuffed.

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"We would like to see more mining and technical skills on the current board," Tribeca investment analyst James Eginton said.

BHP declined to comment.

In April, after months of talks with BHP's management and board, New York hedge fund Elliott went public with calls for BHP to spin off its U.S. petroleum assets and restructure its dual listing around a main listing in London. In May, the investment firm managed by Paul Singer refined its attack by calling for an independent review of the global oil and oil gas operations and suggesting the company retain a main listing in Australia. An Elliott spokesman declined to comment on BHP's board or whether it would push for changes among the directors.

BHP has rejected Elliott's attack, arguing that collapsing its dual structure would be too costly and that there was a good fit between its mining and petroleum operations. Elliott has taken its case directly to other shareholders in Australia and around the world, while BHP's management has held talks with investors in recent weeks following a presentation in Barcelona by CEO Andrew Mackenzie. In that presentation, Mr. Mackenzie said a strategy of cutting costs and unlocking latent production capacity would significantly boost BHP's value.

There has long been concern over BHP's investment in oil and gas, particularly after it invested billions of dollars in U.S. shale assets at the height of the natural-gas boom. At the conference in Spain, Mr. Mackenzie conceded the company had mistimed the acquisitions and said the company had more recently pivoted its focus toward conventional assets.

There may be support for broad changes at BHP, according to a survey of sentiment among Australian shareholders. Asked if they agreed with Elliott's view that major restructuring was warranted to create greater value, almost half of 1,000 people surveyed said yes, a poll by Global Proxy Solicitation and university-based Melbourne Institute said. Still, about 36% agreed Mr. Mackenzie had effectively handled Elliott's approach and fewer than 18% disagreed.

Brett Paton, chairman of wealth-management firm Escala Partners, which advises some of Australia's wealthiest families on their investments, recently waded into the debate by urging clients to question BHP's strategy and the makeup of its board. In a recent letter to clients, Mr. Paton--who was vice chairman at UBS Group AG in Australia for 23 years--said he sought to address the culture at the resources company, and what he called an oversize balance sheet that for decades has led to a company out of touch with its investors.

In an interview, Mr. Paton questioned the credentials of BHP board members and appointments who had overseen the destruction of value at companies they had previously led. However, he said he urged clients to push BHP to consider Ken MacKenzie as Mr. Nasser's successor, if it looks within its ranks, given his success in growing packaging company Amcor Ltd. through well-timed acquisitions.

Mr. MacKenzie, currently a senior adviser at McKinsey & Co. and formerly CEO and managing director for a decade at Amcor, was appointed as a nonexecutive director at BHP last August.

Mr. Nasser was a director at BHP for three years before the former Ford Motor Co. boss was appointed chairman. His predecessor, Don Argus, was also on BHP's board for several years before becoming chairman.